RBA Minutes: Further Easing Not Ruled Out

2/18/2013 10:18 PM ET

Members of the Reserve Bank of Australia's monetary policy board said that additional monetary easing could still be delivered in the future if needed, minutes from the bank's board meeting on February 5 revealed on Tuesday.

The bank supported that position by noting that the 2013 outlook for the Australian economy is below trend, while inflation remains in check. The bank also noted that global economic conditions in general are gradually improving.

"Global economic conditions had been a little more positive and the downside risks had abated somewhat," the minutes said. "The United States had avoided the full extent of the large fiscal contraction that had been legislated. Along with the earlier policy measures in the euro area and plans announced by the new government in Japan, this had contributed to improved financial market conditions. Data from China continued to indicate that growth had stabilized after the softening earlier in the year."

At the meeting, the RBA signaled that there is enough room to ease monetary policy further if necessary, to support demand as it held the benchmark cash rate unchanged at 3 percent.

The bank also noted that there had been a substantial easing of policy as a result of previous decisions. The central bank has cut the policy rate six times since November 2011, with the most recent move being the quarter-point reduction in December 2012.

While the full impact of the past policy actions will still take more time to become apparent, there are signs that the easier conditions are having some of the expected effects, the bank said.

"The inflation outlook, as assessed at this meeting, would afford scope to ease policy further, should that be necessary to support demand," the minutes said. "Noting that monetary policy was already accommodative as a result of the substantial easing of policy over the past 15 months, and that this stimulus was continuing to work its way through the economy, the Board judged that it was prudent to leave the cash rate unchanged at this meeting."

Regarding inflation, the bank retained its assessment that inflation will be consistent with the target over the next one to two years. At present, inflation is in sync with the 2 to 3 percent medium-term target.

With the labor market softening somewhat and unemployment edging higher, conditions are working to contain pressure on labor costs, the bank said. Moreover, moderate demand growth is likely to prompt businesses to focus more on lifting efficiency. These trends are expected to help keep inflation low, even as the effects on prices of the earlier exchange rate appreciation wane.